The US ambassador to South Africa, Reuben E. Brigety, accused South Africa of sending guns to Russia onboard the Lady-R, the suspicious embargoed Russian ship that sailed into Simon’s Town in December 2022 with its transponders switched off. I doubt South Africa sent weapons to Russia, unless it was hand guns stolen from the police armoury, but we are so far past the point of this being the point anymore. Following a bollocking by Naledi Pandor, our Minister of International Relations, Brigety offered up an ‘unreserved apology’, without ever saying what he apologised for. This should be ignored. What matters is the Americans have put us on notice that if we say we are non-aligned, we need to start behaving that way. They don’t have an issue with countries who are actually non-aligned (think Austria), but none of our behaviour is neutral.
An anonymous South African government official made the astonishing statement to the Sunday Times that
“The impression they are trying to create that we need AGOA at all costs is bullshit. [Rather,] they need us because they can’t enter Africa without us, they can’t operate in any other African country without operating from South Africa.
“Their companies cannot be stationed in those countries because they know the rules of engagement are rough there, tax laws can change any time there.”
If this is how government thinks, we are in very deep trouble. Our total exports to the USA accounts for 0.5% of their imports and most of that is minerals.
The idea that South Africa is the gateway to Africa is pure delusion. Yes, we are still the most developed country in Africa (although working very hard to lose that appellation), but as our industrial policies become ever more protectionist, and our infrastructure fails, other African states start to look more attractive. There are many countries in Africa who are friendly towards the West, with Kenya immediately coming to mind. The Kenyans are negotiating a trade agreement with the USA, which will provide them with significant trade benefits beyond what they achieve under AGOA. It would not suprise me to see Kenya replace South Africa, as the voice of Africa.
Economic impact
Right after the ambassador’s announcement, the Rand plunged to R19.32 to the dollar, a drop so severe that for a moment I thought Nomvula Mokonyane would be liberated from Luthuli House to get a grip on capitalist running dogs of the forex markets.
But this is the least of it. I suspect our stance is less pro-Russia than it is anti-American and America knows that. At any other time that is simply accepted, but in the middle of a war, that stance is considerably less tolerated. There is a real risk that President Biden puts South Africa into an out-of-cycle review under the African Growth and Opportunities Act (AGOA). The current version of AGOA is 7.5 years into a 10 year cycle, at which point the US will decide on whether AGOA will continue and if so, how it will look. An out-of-cycle review allows the President of the USA to review the benefits granted to any beneficiary country and
“terminate the designation of the country as a beneficiary sub- Saharan African country or withdraw, suspend, or limit the application of duty-free treatment with respect to articles from the country.“
Because AGOA is US legislation, not a trade agreement, there is no responsibility to consult with South Africa, although public hearings are held. The bar is low and we may already be in breach of AGOA even without exporting arms to Russia. Section 104(a)(2) and possibly (3) of AGOA, states:
“IN GENERAL.—The President is authorized to designate a sub-Saharan African country as an eligible sub-Saharan African country if the President determines that the country—
(2) does not engage in activities that undermine United States national security or foreign policy interests; and
(3) does not engage in gross violations of internationally recognized human rights or provide support for acts of inter- national terrorism and cooperates in international efforts to eliminate human rights violations and terrorist activities.”
If such as a review is initiated, things will go south very quickly. The Rand will tank further and our bond prices will increase. The Reserve Bank will push up interest rates to contain inflation and keep forex flowing into South Africa. Professor Adrian Saville did a quick calculation showing that the latest depreciation of the currency, if sustained, will add 1.8% to our inflation. This will get a lot worse if AGOA is suspended, even if only partially.
AGOA and our trade with the USA
Our total trade with the USA for 2022 was R260 billion, but its really our exports of R178 billion (9% of our total exports) we need to worry about. Of this R30 billion benefited from AGOA, the portion we need to concern ourselves with. R14 billion of our AGOA exports are automotive. The AGOA automotive benefit is 10%, which means that if we lose the AGOA benefits, the US auto importers will need to cough up an extra R1.4 billion in duties per annum. They won’t have a choice in the short-term, but when those new model investment decisions need to be made, this will be a factor in their decision making.
In August 2015, South Africa was subject to an out-of-cycle review because of how we treated American exports of beef, chicken and pork, with chicken being particularly contentious. South Africa agreed to the American demands, US chicken began flowing and no AGOA benefits were suspended, Our agricultural exports were at risk in that dispute, but whilst important, these are trivial compared to losing all the benefits or even just automotive.
Our predictably tardy response to Brigety is not helping. By time we dust off a retired judge, set up the commission of enquiry and then wait two years for a report, our AGOA benefits would already have run out.
Putin in South Africa in 3 months
The BRICS summit will soon be upon us and it seems for now that Putin is determined to arrive in person (I doubt he will). According to the Mail & Guardian, Russia made it clear to South Africa that
“[Y]ou are hosting or are not. If you are hosting, then host. If you don’t want to host, then it means you are no longer a member [of BRICS].”
Government has spoken up BRICS so much that it almost feels as if its a real thing. It is not. There is no BRICS agreement. None of South Africa’s trade is impacted by being a ‘member’ of BRICS, anymore than it is impacted by being a member of the G20. Our trade with BRICS members is really trade with China and India and this will continue whether we belong to BRICS or not. Talk of there being a BRICS currency is nonsense. You don’t have to love the dollar to know that the economics of a BRICS currency is not there – if nothing else, China’s Yuan is still pegged to the dollar and that’s not going to change soon. Yes, more trade can and should happen in other currencies, but that doesn’t require the creation of a new currency or membership of BRICS. We are looking to trade off real and measurable benefits for the fever dream of a trade and currency bloc that will never exist.
SA is standing blindfolded on the edge of a precipice. Our trade with the US, EU and the UK account for 36% of our total exports. If the US pulls the trigger on an out-of-cycle review, we could lose a lot more than our automotive exports to America.
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